The Bank of Botswana (BOB) has made rigorous efforts to keep inflation at its minimum and maintain stability over time. More specifically, the central bank has successfully maintained inflation within the medium-term objective range of 3 percent to 6 percent.
Inflation remained below the lower bound of the Bank’s inflation objective range for most of the period between 2018 and 2020. However, the country experienced a rising inflation rate in the last three months of 2020 to jump above the upper bound of the medium-term objective range.
When inflation tripped below the lower bound of the Bank’s medium-term objective range, it was anticipated that the headline inflation would revert to the range by the second quarter of 2021 and possibly move closer to the upper bound as the year progressed. Other sentiments projected that it would soar above the upper bound, given the COVID-19-induced economic slump. By April 2021, the headline inflation had hit 5.6 percent as forecast but increased further in May 2021 to break the upper bound of the objective range to 6.2 percent. The nightmare continued into June 2021 as the figure jumped further to 8.2 percent.
The Botswana Consumer Price Index (CPI) shows that the annual inflation rate soared to 8.9 percent in July 2021, a rise of 0.7 percent on the June 2021 rate of 8.2 percent, recording an all-time high since December 2011. The July 2021 annual inflation rate was induced by the rise in retail pump price for petrol (P0,63) and diesel (P0.53) per litre which were effected on 10 July 2021. The same had also been the largest contributor in the previous month’s jump from the May 2020 figure of 6.2 percent.
A closer look shows that the rise in fuel prices has mainly led to the rise in Transport group index, giving pressure to the inflation rate within the transport sector. Housing, Water, Electricity, Gas and Other Fuels were the other main contributors to the July rise, albeit at a relatively more stable rate. Food and Non-Alcoholic Beverages had a consistent contribution to the annual inflation rate over the three months from May to July 2021. The sharp rise in inflation may also have been explained by the relatively huge increase in government spending for the 2020/21 financial year, which was mainly triggered by the pandemic.
The June and July 2021 inflation rate for local regions experienced an upward trend. Rural Villages inflation rate went up by 0.9 percent, from 7.9 percent to 8.8 percent while that of Urban Villages went up to 9.0 percent from 8,3 percent in July, showing an increase of 0.7 percent. The Towns & Cities inflation rate went up by 0.6 percent, from 8.2 percent in June 2021 to 8.8 percent in July 2021. Cumulatively, the national Consumer Price Index escalated by 0.8 percent from 110.8 in June 2021 to 111.7 in July 2021.
In lay man’s terms, the Consumer Price Index measures the average change in prices over time that consumers pay for a basket of goods and services.
The Rural Villages index recorded the highest growth compared to that of Towns & Cities. Rising domestic demand and the relative strength of the Botswana Pula against the South African Rand, the country’s main regional trading partner, are perceived to have resulted in higher import prices. The sudden rise of inflation above projections is of major concern as it distorts the average purchasing power of earnings and raises the cost of living. The cost of goods and services tends to rise faster than wages, putting pressure on incomes.
This article was prepared by Data Collection & Analysis (DCA), a business market research and surveys firm. Feedback or inquiries can be relayed to 76 740 658/ research@easternman.co.bw.
